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Published October 3, 2006

Rise in private home prices tops forecasts

Flash estimates show 5.8% gain in first 9 months, against expectations of 5% for whole year


(SINGAPORE) Three quarters of the way into 2006, private property prices have already gone up by more than the 5 per cent earlier projected for the whole year. Housing prices are now 5.8 per cent higher than at the end of 2005.

In January, property consultants agreed that private property prices would continue to climb, following seven consecutive quarters of growth. However, most estimated prices to increase by about 5 per cent for the whole year.

Flash estimates released by the Urban Redevelopment Authority for Q3 now show that the earlier projections were too conservative. The price index has risen to 125.1 points, up from 122.1 points in the previous quarter - a 2.5 per cent increase. And compared to the 118.3 points registered in Q4 2005, it is an increase of 5.8 per cent, or 11.3 per cent higher than the trough in Q1 2004.

Last year, by comparison, prices rose 3.9 per cent, while the price rise in 2004 was just 0.9 per cent.

Joseph Tan, director, residential services at CB Richard Ellis, now believes prices could increase by as much as 7-9 per cent for the whole of this year.

By the consultancy's estimates, only 2,000 units were launched in Q3, down from 2,527 units in the previous quarter, suggesting the significant impact of high-end property prices. 'I would roughly estimate that about half the new units launched in Q3 were for high-end projects,' Mr Tan said.

St Regis Residences may have registered some of the highest prices in Q3 of around $2,900, but Chua Yang Liang, head of research (South East Asia) at Jones Lang LaSalle, believes that it was not the only high-end development that did well. 'The increase in property prices is not an isolated incidence. Other high-end projects that could have caused the rise are Paterson Residence, The Arc at Draycott, The Grange, Ardmore Park and Cairnhill Crest, which recorded an average increase of 1.5 per cent to 5 per cent in Q3,' he said.

The price index is based on the prices of properties transacted and as Ong Choon Fah, executive director at DTZ Debenham Tie Leung, explains: 'This basket of properties changes every quarter.'

Noting that prices of the high-end developments have dominated the market, she added that the index could be 'skewed'.

Mrs Ong believes that the price index should be seen as a 'guide'. 'What we are starting to see is confidence in the market,' she added.

Mass market developments still make up most of the transactions. On average, this works out to about 75 per cent every quarter, says Nicholas Mak, director of research and consultancy at Knight Frank. On the flash estimate, he said: 'As long as prices in this market do not contract, the price index should go up.'

PropNex CEO Mohamed Ismail confirms that not all private properties have seen price increases. 'The increase in prices is not being experienced in the secondary market in the suburban areas, even though volume has increased.'

On the flash estimates of the Housing and Development Board's Q3 resale price index, which dropped by 0.2 of a point to 102.6, Mr Mohamed believes that 'middle and higher income' buyers are now opting for private property because prices are still below the previous peak.

Although he said that the drop in the resale price index is insignificant, he did add: 'The number of unsold flats have also weakened the HDB resale market.'

Mr Mohamed expects the number of resale flats to dip below the 31,000 or so units transacted last year, and as such, does not expect the resale price index to go up by more than 0.2 per cent in the next quarter, if at all.

Eugene Lim, assistant vice-president at ERA Singapore, agrees that the drop in the resale index is not significant, adding that he has noticed more people choosing to upgrade to larger flats. Last year, five-room resale flats accounted for less than 20 per cent of resale transactions. This has since risen to around 24 per cent for recent quarters, he said.

ERA's own data shows that resale volume in four-room flats has instead decreased from 40 per cent to 36 per cent this year, while the volume for three-room flats stayed at 33 per cent while executive flats has remained stable at 7 per cent.

In Mr Lim's analysis, activity in the HDB market bodes well for the mass market. Over the past six quarters, some 5,000 units of 4-room or larger flats have been sold every quarter. He said: 'Assuming just 20 per cent of these sellers choose to upgrade to private residential properties, we are looking at a steady pool of some 1,000 potential buyers of mass market condominium projects per quarter.'